Winning Through Innovation: Managing New Product Development for Profitable Growth. Pete Bussey Solution Principal SAP America

Transcription

1 Winning Through Innovation: Managing New Product Development for Profitable Growth Pete Bussey Solution Principal SAP America

2 SAP AG 2005, 2 Today s Business Imperative: Innovate or Die!

3 Questions about New Product Development NPDI why are new products so vital? NPDI what is the process, how does it work? NPDI what is SAP s solution? NPDI = New Product Development and Introduction SAP AG 2005, 3

4 Why are new products so vital? Innovation: the new business imperative SAP AG 2005, 4

5 Companies are Introducing More New Products New product introductions have dramatically increased ,000 R&D as % of sales , Average R&D expenditure as % of sales has doubled since 1981, and is now 18% for US-based research companies Companies are introducing more new products and devoting a larger percentage of revenues to R&D Source: Accenture & PWC SAP AG 2005, 5

6 New Products Are Driving Revenues Faster New Products = New Revenue Streams Now +3 yr Top Quartile: 36% 45% Median: 15% 20% Source: Deloitte Research, Global Benchmarking Study, 2003 Mattel s new toys introduced within the last year, produce 70% of its sales (Source: A.T.Kearney, Mastering Innovation Management, 2002) Products newly introduced by Johnson & Johnson account for 25% of total company sales during past 5 years (Source: Bradley 1995) SAP AG 2005, 6

7 New Products Create Growth, Value Revenues $$ Margins % Market share % Competitive position # Growth Value Stock price Market cap. New Products New category New product Incr. improvements New geographies New markets New customers SAP AG 2005, 7

8 Product Innovation Is a Strategic Priority New products = number one growth factor Rank All manufacturing Automotive Consumer Products Discrete Manufacturing High Tech/ Telecom Equipment Life Sciences Process/ Chemicals 1 New product and services launch New product and services launch New product and services launch New product and services launch New product and services launch New product and services launch New product and services launch 2 Economic turnaround Economic turnaround New channels Economic turnaround Economic turnaround Industry growth Economic turnaround 3 Industry growth Industry growth Economic turnaround 4 New channels New market entry 5 New market entry 6 JVs/ Alliances JVs/ Alliances Industry growth New market entry Industry growth Industry growth JVs/ Alliances New market entry New channels New channels M&A JVs/ Alliances 7 M&A M&A JVs/ Alliances Industry growth New channels New channels New market entry JVs/ Alliances New market entry M&A New market entry M&A M&A JVs/ Alliances New channels JVs/ Alliances M&A Source: Deloitte Research; Mastering Innovation, 2004H SAP AG 2005, 8

9 What is NPDI, and how is it working today? NPDI: A critical business process SAP AG 2005, 9

10 The Key Is an Effective, Collaborative NPDI Process New Product Development and Introduction (NPDI) is the process of managing all activities and resources to bring a new product to market that meets customer needs and supports the business goals Marketing R&D Supply Chain Manufacturing Marketing Customer needs Designs Bills of material Launch plans Opportunity Product External Partners SAP AG 2005, 10

11 But How Are Most Companies Faring? Staggering statistics 95% of new consumer products ( 96-01) lost money or broke even Mean new vehicle development costs are $500M higher than best in class Poor NPDI costs apparel makers 30% of annual revenue in markdowns Food retailers spend $957K per store on new products that fail 90% 80% 70% 60% 50% 40% 30% 20% 10% 80% And year-one revenues from only 3% of new brands introduced in past 5 years have earned more than $50M 9% 8% 0% <$10M $10-20M (US, ) $20-50M 2% 1% $50-100M $100M+ Product development delays can reduce a company s stock by 10% (Source: Prof. Vinod Singhal, DuPree College of Management, Georgia Institute of Technology) SAP AG 2005, 11

12 Reality: Symptoms of Ailing NPDI Processes Features Cost Quality Timing Demand Product does not provide the features that the customer wants Cost is too high: Product is priced beyond the expectation of the customer or makes loss Product quality is below standard; product sells badly and/or warranty and return costs are high Product misses market window (season, competitor activity) Forecast too high: obsolete parts and inventory in the channel; too low: missed opportunity for additional revenue How many of these look familiar to you?! SAP AG 2005, 12

13 The NPDI Process Is Broken Lack of Process and Methodology Extensive implementation No implementation Lack of Collaboration Across the Value Chain Extensive implementation No implementation Change from functional management to program/process management approach Use formal product lifecycle program methodology 0% 10% 20% 30% 40% 50% 60% Percentage of respondents Collaborate with cross functional design teams Collaborate with customers to define product requirements (specifications) Collaborate with suppliers to design components or develop new materials Collaborate with suppliers to develop production processes 0% 5% 10% 15% 20% 25% 30% 35% Percentage of respondents Source: Mastering Innovation- Exploiting Ideas for Profitable Growth, Deloitte Research, 2004 Source: Mastering Innovation- Exploiting Ideas for Profitable Growth, Deloitte Research, 2004 Lack of Management Control System Complexity Barriers No 55% Yes 45% Yes 31% Number of Major Systems: High Tech: 5-8 per billion revenue Is NPDI Strategically Under Control? No 41% Yes 59% Is NPDI Financially Under Control? No 69% Is NPDI Strategically and Financially Under Control? Aerospace: per billion revenue Automotive: per billion revenue The typical Fortune 100 company has between 100 and 1000 separate systems to integrate Information impossible to access and reconcile Source: AMR Research (Unmanaged R&D Spending is the Leak that Shareholders Want Plugged, Feb 2004) Source: AMR Research SAP AG 2005, 13

14 The IT Landscape Supporting NPDI is Fragmented Does IT help or get in the way? The typical Fortune 100 company has between 100 and 1,000 separate systems to integrate SAP AG 2005, 14

15 There is a Big Price to Pay for Ineffective NPDI % 95% Lifecycle cost determinations 80 70% Cost reduction opportunities Conceptual design (creative, early phase) Detailed design (engineering phase) Production Operations and support >80% of Product Lifecycle Costs are Locked in during Design Source: DARPA Rapid Design Exploration and Optimization Project SAP AG 2005, 15

16 What is SAP s solution? NPDI: Real Solutions, Differentiated SAP AG 2005, 16

17 Critical NPDI Capabilities Product innovation management Idea, portfolio management Project management Project, resource, and cost management Functional execution Strategic sourcing Supply chain planning Product development Prototyping Production ramp-up Market launch SAP AG 2005, 17

18 Fully Integrated, Closed-Loop Innovation Process 2. Balance portfolio Prioritize investments Balance resources Idea, portfolio management 1. Determine need for new products Track opportunities Prioritize concepts 3. Create project plan Schedule tasks Allocate resources Define quality gates and deliverables Project, resource, and cost management 8. Manage project Manage stage reviews Monitor schedule and budget 4. Design product Meet customer needs Meet business goals Strategic sourcing Supply chain planning Product development Prototyping Production ramp-up Market Launch 7. Launch product Create demand Prepare channel 5. Establish sourcing and supply chain Select optimum suppliers Create optimum supply chain 6. Establish production Set up manufacturing process Resolve design problems SAP AG 2005, 18

19 Innovation, Portfolio Mgmt. (xpd, xrpm) Systematic Idea Management Systematic idea capture from various sources Classification schemas for intelligent grouping Integrated Concept Development Market and technical feasibility assessment Centralized access for ALL concept information Collaboration tools for cross-functional perspectives Optimal Portfolio Management Dashboard for status alerts and portfolio KPIs Portfolio analysis to ensure balance and strategic alignment Strategic Resource Management Visibility of resource supply for informed gate approvals Scenario modeling for optimal resource distribution Drill-down of project details to monitor capacity constraints SAP AG 2005, 19

20 Project Execution: cprojects cprojects Basic Scheduling Project templates Links to R/3 Objects Automated approvals and status reports WBS, Stages, Gates Checklists, Document Templates Integration Automates the gated processes such as PACE or Stage-Gate With Portfolio Management to Increase the value of your development portfolio With Financials to financial viability of projects before investing Resource Management Increases project and program visibility on resource utilization and capacity SAP AG 2005, 20

21 PDM: Lifecycle Data Management CAD Desktop, Document Mgmt. Direct integration to major 3D CAD Product Structure Management Part management, classification BOM Management, Routings Recipe Management Formulas, Specifications Recipe Substance database Change management Issues, Change Requests Engineering Change Management Order Change Management Operations, NPD Integration Manufacturing Instructions Project Documents Procurement, Quality, Service SAP AG 2005, 21

22 SAP has the Inside Track for NPDI As companies move toward Demand-Driven Supply Networks (DDSNs) they face their trickiest technology strategy decisions in the vital, but complex New Product Development and Introduction (NPDI) process. NPDI calls on a lot of different tools and data. Does this make it the natural domain of Enterprise Resource Planning (ERP) vendors? The larger the business, the more likely the answer is yes. The Bottom Line: Larger companies are giving ERP vendors the pole position in owning the NPDI business process. AMR, ERP Vendors are Set to Win the Battle for NPDI, Dec SAP AG 2005, 22

23 SAP AG 2005, 23 Customers That Have Selected SAP to Support Their New Product Development Processes (partial list)

24 Why do Companies Choose the SAP NPDI Solution? Tangible Business Benefits Integration and Speed to Value Risk Mitigation Reduced time to market for new products Increased revenue, better margins Improved NPDI productivity Broad functional capabilities Fully integrated > lowest Total Cost of Ownership (TCO) Powered by NetWeaver SAP viability Large manufacturing installed base R&D commitment and investment SAP AG 2005, 24

25 NPDI - Growth Through Innovation You only get a position in the future by investing, creating something new, and staying ahead of the competition. So it s simple: invest or die The companies that know how to develop things are ultimately going to create the most shareholder value. It s as simple as that. Craig Barrett CEO Intel Business 2.0, January/February 2004 Jeffrey Immelt Chairman and CEO General Electric MIT Technology Review, October 2003 Manufacturers recognize the critical importance of innovation to their future success There is enormous scope to improve the way in which NPDI is managed You can get started today using solutions already available from SAP SAP AG 2005, 25

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